Heineken Sets Sights on Brazil

By Carol Ryan

Jan. 20, 2017

Heineken hopes that Dutch courage will succeed where Japanese adventurism did not. The beer company is in talks to buy the Brazilian unit of Kirin, and may pay $872 million, according to Japanese news media. Landing a deal would give the company close to a 20 percent market share, still well behind its dominant rival, Anheuser-Busch InBev. The target is loss-making, but Heineken has reason to believe it could do a better job.

The Amsterdam-based beer giant got a perch in the Brazilian market in 2010 when it bought Femsa, owner of the Kaiser and Sol brands. It is currently the No. 3 player, holding around a 10 percent market share, according to MarketLine research. AB InBev looms large with 70 percent.

Although Heineken does not break out details on how it is faring in the country, Brazil has been a headache for brewers. AB InBev said beer volumes declined by 4.1 percent in its third quarter, year on year, as a tough economy squeezed consumer incomes. However, the country’s huge beer market will be worth close to $60 billion by 2020, up from $40 billion in 2015, according to MarketLine. Heineken is maneuvering for a bigger slug of that growth.

A sale would also suit the target’s Japanese owner, which is keen to offload a 2011 investment gone sour. Brasil Kirin is forecasting a full-year operating loss for 2016, although the extent of its losses will narrow on 2015. Its market share has fallen to 12 percent from over 15 percent since the acquisition, according to Jefferies.

The price looks commensurate. An $872 million price tag, reported by the business daily Nikkei, implies a valuation of 0.9 times the forecast 2016 revenue — around $980 million. Heineken trades on a multiple of 2.5 times sales, Eikon data shows. Kirin, back in the day, paid 2.2 times forecast revenue for the business, then called Schincariol.

Heineken has a few options for hauling the unit back to profitability. AB InBev’s 38 percent third-quarter profit margin, before interest, taxes, depreciation and amortization, gives something to aim for. The Dutch group may have scope to slash operating costs by combining Brasil Kirin with its existing brewery and distribution network in the country. And the extra market heft, as well as one rival fewer, may bring pricing power. By getting into position now, Heineken can profit when Brazil gets its swing back.